accounting-Developing a Master Budget for a Merchandising Organization

QUESTION

Developing
a Master Budget

for a Merchandising
Organization

Peyton
Department Store prepares budgets quarterly. The following information is
available for use in planning the second quarter budgets for 2010.

PEYTON
DEPARTMENT STORE

Balance
Sheet

31-Mar-10

Assets
Liabilities and
Stockholders’ Equity

Cash
$4,000
Accounts payable
$26,000

Accounts
receivable
25,000
Dividends payable
17,000

Inventory
30,000
Rent payable
3,000

Prepaid
Insurance
2,000
Stockholders’ equity
40,000

Fixtures
25,000

Total
assets
$86,000
Total liabilities and equity
$86,000

Actual
and forecasted sales for selected months in 2010 are as follows:

Month
Sales Revenue

January
$40,000

February
50,000

March
40,000

April
50,000

May
60,000

June
70,000

July
90,000

August
80,000

Monthly
operating expenses are as follows:

Wages
and salaries
$26,000

Depreciation
100

Utilities
1,000

Rent
3,000

Cash
dividends of $17,000 are declared during the third month of each quarter and
are paid during the first month of the following quarter. Operating expenses,
except insurance, rent, and depreciation are paid as incurred. Rent is paid
during the following month. The prepaid insurance is for five more months.
Cost of goods sold is equal to 50 percent of sales. Ending inventories are
sufficient for 120 percent of the next month’s sales. Purchases during any
given month are paid in full during the following month. All sales are on
account, with 50 percent collected during the month of sale, 40 percent
during the next month, and 10 percent during the month thereafter. Money can
be borrowed and repaid in multiples of $1,000 at an interest rate of 12
percent per year. The company desires a minimum cash balance of $4,000 on the
first of each month. At the time the principal is repaid, interest is paid on
the portion of principal that is repaid. All borrowing is at the beginning of
the month, and all repayment is at the end of the month. Money is never
repaid at the end of the month it is borrowed.

a)
Prepare a purchases budget for each month of the second quarter ending June
30, 2010.

Peyton
Department Store

Monthly
Purchase Budget

Quarter
Ending June 30, 2010

April
May
June
Total

Budgeted
purchases
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(b)
Prepare a cash receipts schedule for each month of the second quarter ending
June 30, 2010. Do not include borrowings.

Peyton
Department Store

Schedule
of Monthly Cash Receipts

Quarter
Ending June 30, 2010

April
May
June
Total

Total
cash receipts
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(c)
Prepare a cash disbursements schedule for each month of the second quarter
ending June 30, 2010. Do not include repayments of borrowings.

Peyton
Department Store

Schedule
of Monthly Cash Disbursements

Quarter
Ending June 30, 2010

April
May
June
Total

Total
cash disbursements
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(d)
Prepare a cash budget for each month of the second quarter ending June 30,
2010. Include budgeted borrowings and repayments.

Only
use negative signs, if needed, for: excess receipts over disbursements,
balance before borrowings and cash balances (beginning and
ending).

Peyton
Department Store

Monthly
Cash Budget

Quarter
Ending June 30, 2010

April
May
June
Total

Cash
balance, beginning
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Receipts

Disbursements

Excess
receipts over disb.

Balance
before borrowings

Borrowings

Loan
repayments

Cash
balance, ending

(e)
Prepare an income statement for each month of the second quarter ending June
30, 2010.

Only use
negative signs to show net losses in income.

Peyton
Department Store

Budgeted
Monthly Income Statements

Quarter
Ending June 30, 2010

April
May
June
Total

Sales

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Cost of
sales

Gross
profit

Operating
expenses:

Wages
and salaries
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Depreciation

Utilities

Rent

Insurance

Interest

Total
expenses

Net
income

(f)
Prepare a budgeted balance sheet as of June 30, 2010.

Peyton
Department Store

Budgeted
Balance Sheet

30-Jun-10

Assets
Liabilities and Equity

Cash

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Merchandise payable
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Accounts
receivable
Dividend payable

Inventory
Rent payable

Prepaid
insurance
Loans payable

Fixtures
Interest payable

Total
assets
Stockholders’ equity

Total liab. & equity

 

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